Australia’s second-richest man Frank Lowy, worth almost $7 billion, suffered a huge setback yesterday when a key vote to restructure the global shopping centre empire he co-founded in 1960 was postponed in the face of a backlash from investors.

What’s he up to?

This is the third Westfield restructure in a decade, so it’s hard to keep track. In the old days, the parent business Westfield Holdings (in which the Lowys held a controlling stake and amassed their wealth) took all the development risk — building, leasing and managing the shopping centres — while ownership of the malls was transferred to the listed Westfield Trust (the Australasian malls) and later also the Westfield America Trust (the American malls). Under this structure, copied from property groups Lend Lease and GPT, the listed property trust paid Westfield a handsome management fee and enjoyed ever-increasing rent (paid out to unitholders as tax-effective distributions) and growth in valuations.

Then “stapling” came into vogue: property investors wanted to share in the development profit, and stop the fee drain, by “internalising” or combining the management business and the assets. So in 2004 the Lowys stapled together Westfield Holdings, Westfield Trust and Westfield America Trust to form a juggernaut that expanded into the United Kingdom. Then things turned sour. Multiplex’s debacle building London’s Wembley Stadium signalled the dangers of the new aggressive, highly geared vehicles — which took on development and currency risk — before the financial crisis wiped out a string of property plays like Centro, GPT and Mirvac. Investors hankered for the stable returns of good old-fashioned property trusts. So in 2010 Lowy — who came through the GFC in remarkably good shape — spun out the Westfield Retail Trust (WRT), meant to be a low-geared vehicle with passive stakes in the Australasian malls. Last year the Lowy family sold their entire stake in WRT for $665 million, retaining an 8% stake in Westfield Group.

Now the Lowys want to unstaple all the remaining Australasian property interests and the development and management business from Westfield Group and restaple them with WRT, to create an all-new listed vehicle, Scentre Group. A renamed Westfield Corporation, listed on the ASX for the time being, would own and manage malls in the US, UK and Europe, and licence the Westfield brand to Scentre for nothing. The Lowys would emerge with 8% of Westfield Corporation, 4% of Scentre, and patriarch Frank would be non-executive chair of both companies.

Why do that?

While Frank Lowy has deep roots here — he lives in Sydney (Point Piper), as do two of his three sons David (Vaucluse) and Steven (Watsons Bay), and is chairman of Football Federation Australia until the end of next year. But the restructure would shift the bulk of the family’s business interests overseas, to be invested in uber-prime assets like Westfields in London and LA, and target high-risk, glamorous markets like New York and Milan, which is getting the first Westfield on the continent. Management of the Australasian business will be left in the hands of long-time Lowy lieutenants like finance chief Peter Allen. Westfield dominates the shopping centre industry here, but the market is seen as mature, low growth and vulnerable to increasing online sales and the decline of department stores.

What went wrong?

A sizable chunk of WRT investors — including the biggest, Unisuper, holding 8% of the trust — hate the deal, which they see as advantageous to Westfeld Group, even after it was sweetened earlier this month. They don’t like the extra debt they’re saddled with, which will increase gearing from 22% to 37%, and reduce asset backing from $3.47 to $2.88 a share. They don’t like putting in 68% of the new Scentre’s assets, but only getting 51% of the stock. And they don’t like Frank Lowy hanging on as chair, after the family’s surprise dumping of the stock last year.

What happened yesterday?

Hundreds of Westfield shareholders gathered in the glitzy ball room at the Sydney’s Sofitel Wentworth to approve the $70 billion restructure. The mood was tense, exacerbated by ritual sparring during the initial annual general meeting of Westfield Group, when the remuneration of the Lowys, and the independence of the board, was raised by the Australian Shareholders’ Association for the umpteenth time. Next up was the meeting to formally consider the restructure. Westfield Group shareholders voted overwhelmingly in favour, as expected. The main game was in the afternoon, when WRT unitholders who had not already lodged proxy ahead of the Tuesday deadline, would cast their vote. The restructure needed a 75% yes vote. Everyone knew it was tight: Lowy (who knew how the proxies were running) told the meeting it was “too close to call”.

Then Lowy dropped a bombshell, telling shareholders if the WRT meeting in the afternoon did not approve the restructure, Westfield would go it alone: “It will not diminish our determination to proceed with Westfield’s strategic objective of separating the two businesses. We will pursue that separation — but without WRT.” This was always an option for Westfield if the vote failed, but now it was a grim certainty. The very company that managed and co-owned WRT’s assets would suddenly be competing for capital in the Australian market. A sub-scale WRT would be left stranded. Lowy had moved the goalposts. ASA policy director Stephen Mayne, Crikey‘s founder, spoke up immediately, accusing Lowy of oppressive conduct, and using strong arm tactics designed to intimidate WRT investors. A usually statesmanlike Lowy completely lost his cool, accusing Mayne of “character assassination”. The Westfield meeting adjourned. Twitter fired up. The scene was set for a showdown. There was time — too much time — for sandwiches.

It was 3 o’clock before WRT chairman Dick Warburton — the 72 year-old ex-Caltex chairman and former Reserve Bank board member who is reviewing the renewable energy target for the federal government — put the proxy votes already lodged up on the big screen. Everyone could see Westfield had fallen short, with only 74.1% of WRT voters in favour. The fate of the $70 billion deal would be decided on the floor — almost unheard-of for a deal of this size.

Why was the vote deferred?

Big fund managers almost never speak up at shareholder meetings. When they do, it inevitably causes a sensation. The real shock yesterday came when BT’s property fund manager Peter Davidson rose to speak and called on the board to defer the vote, arguing Lowy’s position that morning was material new information investors should be given time to consider. Davidson supported the restructure, but feared it would fail on the floor. In fact, given the small number of shares being voted in the room, there was almost no chance the vote would succeed. Warburton was suddenly in uncharted waters. Recognising the gravity of Davidson’s call, he called for a quick adjournment to caucus with his board. Reconvening 10  minutes later, company secretary Katherine Grace told the meeting it was within Warburton’s discretion to adjourn the meeting. Controversially, however, Warburton sought the mood of the room, asking for a non-binding vote, which came back 82% in favour of deferral. A fresh vote will be held in 10-14 days.

Hey, is that legal?

A good question, which remains to be tested. There is no doubting Warburton’s ability to defer the meeting. But the validity of the non-binding vote could well be challenged — investors not in the room, particularly those who had already voted against the deal, were denied a say. Today there are reports of possible legal action. The real question is whether it was legal — for example, under the truth in takeover provisions of the corporations law — for the Westfield board to change the deal terms so close to the vote once it was clear the tide was against them. After the first sweetener, Westfield indicated the terms of the WRT deal were final and would not be “recut”. Far from being sweetened, the deal has been soured. Lowy’s grand Australian exit strategy is in tatters.